Can America Add Four Million Jobs in 2012?

America must add four million jobs next year to significantly eat away at the employment loss of the past four years. More than 16 million citizens are out of work in the U.S. That puts the unemployment rate around 9%, depending on how it is measured. The challenge of rapid job growth is a difficult one, but one that can be overcome. Today’s 200,000 net jobs addition is a positive signal

Most of the job loss since 2007 has occurred in the private sector. The public sector has begun to shed workers, though, as austerity measures and low tax receipts prompt layoffs at the state and local level. Those are likely to be added to federal worker layoffs. The trend means the private sector will have to add well over four million jobs if it the employment situation is to substantially improve.

There are signs that the economy can add new workers without government stimulus. The private sector added close to 150,000 new jobs in each of the past three months of the final quarter of the year. That pace of nearly 500,000 a quarter will need to be doubled to get the unemployment rate back to near 7%, based on the 16 million jobless Americans. But there are signs of improvement in several sectors crippled by the recession, which will help the most troubled part of the economy to add workers.

The auto industry, one of the nation’s largest, has begun to rehire some of the tens of thousands of workers it fired when car sales dropped from 16 million a year in 2005 to just about 9 million in 2009. Auto sales in the U.S. rose to 13 million this year. All three of the large American car makers made money. Demand is strong enough that factory activity will have to rise. And job additions in the industrial sector is not limited to auto companies. Lower labor costs, brought on by the need of manufacturing workers to find positions, has brought down the cost of factory labor for the first time in memory.

The service sector has added jobs at a quickening pace. Some of the newly hired people have to work for less than they did when they were last employed. That drop will put a dent in consumer activity, but employed workers are better for the economy, of course, than those out of work. And, consumer activity feeds on itself. Employment rises, and then it rises further as consumer products sales increase.

It is an open subject as to whether the huge storehouse of cash built up by many American corporations will be used to fund job growth. Among the most positive aspect of strong balance sheets is that they at least offer the potential to fund work. Weaker balance sheets would not afford large companies nearly the chance to add employees as business picks up as a ready store of capital does. It is ironic, but many companies have better balance sheets because they shed workers or did not add any recently. Product and service demand is probably about to reverse that trend.

The government may help the employment problem by simply doing nothing. Tax cuts that are in place may stay in place. The theory that people are more active economically when their tax rates are low certainly has precedent.

GDP has gone from rapid contraction to modest expansion. If the past is any indication, the job market already has begun what likely will be accelerated improvement. But for the improvement to bring unemployment rates to anywhere near where they were five years ago, there must be an addition of at least 350,000 net new jobs a month throughout this year. The economy is such that the goal is more than a dream.

Douglas A. McIntyre